University of Minnesota's bloat must end

At our beloved U, there’s been a destructive trend of excessive compensation and administrative bloat. Here’s what we can do about it.

Article by: Arne H. Carlson

America’s global economic strength has long been driven by the quality and accessibility of its higher education. This has been particularly true since passage of the GI bill at the close of World War II. The new access it delivered defined another opportunity to live the American Dream.

Now that opportunity is in jeopardy. Consider this:

• In 1970, a student could pay his or her way through the University of Minnesota by working 24 hours a week at a minimum-wage job. Today, it would require an impossible 61 hours.

• The average student today accumulates $30,000 of debt, costs that increase in graduate school. For instance, in medicine the typical debt load is $150,000. This influences students’ choices, with specialties gaining and general practice in decline.

• Nationally, student debt totals around $1 trillion. About 15 percent, or $150 billion, is expected to go into default.

These trends will hurt our economy. There will be fewer housing starts, difficulty attracting teachers and doctors, as well as the increased debt itself. Rising costs will also prevent many talented individuals from seeking advanced degrees in areas vital to economic growth. A recent Price-­Waterhouse report noted that the United States is losing its “innovative edge” in medical technology to countries like China and Brazil.

Over the past several months, troubling stories have been published in the Star Tribune, Washington Post and Wall Street Journal concerning to the University of Minnesota’s administrative bloat and excessive compensation costs. Despite administrators’ efforts to brush aside the importance of these rising costs, it is of vital importance that we deal with them and prevent further harm.

The reality is that higher-education leaders have created a financial model that focuses on their importance, and it is spiraling out of control. This is increasingly fueling media criticism and is identified as a cause for sharp increases in tuition. It only exacerbates the problem when many universities, including Minnesota, launch studies to compare their rising costs with those of other spiraling systems and proclaim this to be “the market.” In fact, administrative salaries have exploded.

When I came into the governor’s office in 1991, the president of the university made approximately $152,000. I made $112,000 — for a gap of some $40,000.

Today, the governor makes $120,000, and the university president is paid $610,000 — a gap of $490,000.

The lead attorney for the university makes $295,000. That’s about $180,000 more than Minnesota’s attorney general, $95,000 more than the attorney general of the United States, and over $70,000 more than the chief justice of the U.S. Supreme Court.

The university president’s chief of staff earns a salary comparable with that of the U.S. secretary of state. The university lobbyist who pleads the school’s case at the State Capitol earns some $60,000 more than the governor.

Joel Maturi, a fundraiser and part-time teacher, makes $468,000; the president of the United States earns $400,000.

Overall, the Wall Street Journal and Washington Post found some 17 administrators making over $300,000 per year — well more than the vice president of the United States. Some 81 earn over $200,000 per year, or more than any cabinet-level secretary.

As if this is not sufficient cause for alarm, retirement packages also have attracted attention.

First of all, the university has a rich pension formula for its higher-level employees, including administrators. Prior to January 2012, the required employee contribution rate was 2.5 percent of salary, with the university contributing 13 percent. Most public employee systems require a more-even split between employer and employee. In January 2012, a new formula went into effect, with upper-level employees contributing 5.5 percent while the university puts in 10 percent — still a most generous plan.

Interestingly, the university is far less generous to its civil service employees. They are part of the Minnesota State Retirement System and contribute 5 percent of their salaries, with the university putting in another 5 percent.

Simply put, the top echelons of administrators have a substantially richer pension reward system than the average employee.

On top of this, the Star Tribune has revealed the enormous costs of particular retirement packages.

At the height of the deep economic slump from 2007-12, while the middle class was losing some 40 percent of its total net worth and students were buckling under the weight of sharp tuition increases, some top university administrators were helping themselves to unprecedented retirement riches.

For instance, the chancellor of the University of Minnesota Duluth was granted a $535,700 bonus package by retiring President Robert Bruininks. Other top administrators were also benefactors, sharing the $2.8 million made available by the university.

The enrichment package that caught everyone’s attention was that of Bruininks. Upon leaving the presidency, he received $455,000 for the purpose of preparing himself to return to the academic world. He also funneled some $355,000 to his newly created Center for Integrative Leadership, where he teaches at a salary over $340,000.

This excess directly translates into higher administrative costs, which are then charged to the university’s various colleges. For instance, the medical school pays more than $66 million a year for overall administration services, ranging from utilities to a variety of student services as well as technology, library, etc. No one specific item identifies administrative overhead. Rather, these costs are blended in with the overall figures.

But the bottom-line result is that our medical students pay the highest or near the highest tuition among public universities, and this affects our ability to attract the highest-quality students.

Further, most management employees are under contract rather than serving at-will. This means they can be fired only for cause. This has created some highly expensive and inefficient practices, including lawsuits. It is not uncommon for an outgoing president to extend the contracts of his favorite managers, thereby limiting the flexibility of the incoming president.

It has also created an environment resistant to dismissal and supportive of transferring less-productive employees.

A failure of oversight

Good management learns from past mistakes and uses that learning to make meaningful long-term reforms. Large public universities, including North Carolina and California, Berkeley, have engaged a well-respected management-consulting firm that laid out a path to savings of $66 million at UNC and $75 million at Berkeley. The same firm created savings of $85 million at Cornell.

In many ways, the most intriguing and far-reaching reforms occurred at the University of Maryland, which achieved savings of $136 million over a period of six years. In 2008, Maryland’s governor, university chancellor and Board of Regents agreed that the existing financial model of student debt, rising tuition and unpredictable government funding was not sustainable. Rather than kicking the can into the future, they launched an ambitious reform effort and got buy-in from the public as well as the faculty. It was bold and painful but yielded good results.

The same level of bold leadership is needed here. If done properly, it can create the university of tomorrow that utilizes all the tools at hand, including technology, to create an affordable, high-quality educational experience.

Toward that end, it is imperative that the Legislature recognize that it has the ultimate responsibility for the decisions of the Board of Regents, which selects the president and oversees the budget as well as the personnel and management systems.

Clearly, the oversight function has failed. If lawmakers resist initiating cost savings and reform, and continue to place the financial burden on the taxpayer, they run the real risk of losing elections in 2014. They can expect opposition campaigns to feature what the Star Tribune refers to as “eye-popping” salaries, the inefficiencies of management, along with the hefty “transition” packages and generous pensions. It is not likely that voters struggling to afford educational opportunities for their children will consider these practices prudent or acceptable.

The Legislature would be well-advised to consider the following:

1. Put into effect in the pending budget a realistic savings target that compels the university president and regents to overhaul the administrative systems and achieve reductions now.

2. Request that the legislative auditor review two critical parts of the university’s enterprise system, which is the central information system. The quality of that system is vital to good decisionmaking. The two parts in question and in need of outside review are the Human Resources Management System and the Enterprise Financial System. Both systems were costly (more than $100 million just for the financial part) and were designed to “provide accurate, timely, comprehensive and accessible information” according to the university’s chief financial officer.

Yet all too often it seems impossible to obtain answers to the most basic questions about human resources and finances. The solution seems be to hire another consultant. Why? I agree with state Rep. Gene Pelowoski, DFL-Winona, an educator, who declared: “You’re going to spend half a million dollars more to tell you something you should already know.”

It is imperative that the Legislature uses the independent services of the legislative auditor, who has always demonstrated a keen understanding of government management and will tell it like it is.

3. The governor should take the lead in bringing together some of Minnesota’s best leaders to develop a new approach for creating a competent and visionary Board of Regents, chosen on the basis of competence and not politics. Leadership at that level is vital. Surely we can give the taxpayers a board as capable as the ones serving our private colleges. Using members of the Itasca Project may well be the place to start.

The final responsibility lies with us, the taxpayers. We love the university; we value its mission of quality education and research, and we have personally benefited from its services. It is our university, and we want it be the best it can be, and we want it available and affordable for our children. But we must insist on reform, and on an administrative culture of efficiency and public service.